Stan Bharti, the founder of Forbes & Manhattan took some time recently to speak with Metals News about their strategic plan and how they acquire investment targets.
Said Bharti, “I started Forbes and Manhattan about 15 years ago to take advantage of a resurgence in commodities, partially driven by China’s demand, and partially by a decade of low metal prices. I realized that the best returns on commodities are found in junior mining stocks, the proverbial twenty cents to two dollars. Combine a good asset with strong technical managers, capital market expertise and access, and proper company administration and governance and you have the ingredients for success.
Unfortunately that is not where the biggest bull market in stocks is right now. It is currently in technology. Even with the current focus on technology, Bharti believes there are still many lucrative options in commodities, but they are in the juniors where massive overselling has brought valuations to all time lows.
Bharti also believes the best returns are in emerging markets. He said, North America, as well as Australia has been fairly valued with respect to mining valuations in recent years. Fortunately for us the overselling has created fantastic opportunities to acquire companies with great projects that have become financially unviable in this current climate. We are picking up great projects such as Arena Minerals Inc. (TSX:AN), focusing on copper exploration in Chile, and Kombat Copper Inc. ( TSX:KBT) in Namibia.
With
this approach, Bharti has been successful, unlike many other junior mining
companies that are on the market. He
said, “When you look at listed companies, half of the junior companies will go
nowhere. We make money when stocks go
up.” We are mine-building focused from
day one, not focused on the build a resource /geology game. Stocks go up when you de-risk projects from
resource to engineering to environmental permitting through mine construction
and operation. That method is what has made him successful. He said, “The way you do that is you get a
world class asset and give the technical team all the support they need –
finance people, accountants, people who understand capital markets. If you don’t know how to promote the deal you
won’t go anywhere. We distinguish
ourselves by taking a junior company and we surround them with that expertise. We surround them with powerful legal teams,
investment bankers, analysts and financial teams.” This gives smaller mining companies access to
the expertise that a large company takes for granted.
Bharti
has proved that his approach works. He
said, “Since 2002, we have done an analysis on all of our mining deals and we
have a 60% IRR. We find good projects
and work them for three to four years.”
Avion Gold is an excellent example of how Forbes & Manhattan has
turned a project around. Founded in 2008
in Mali with the acquisition of a past producing mine for $20million, we put in
our own technical teams, re-activated the mine, increased the resource five
fold and doubled the capacity of the mill. We ultimately sold the Company for
$400 million dollars in 2012.” This is relatively common for the way that
Bharti does business. Said Bharti, “The
goal for us is to buy a company for $5 million dollars and sell it for $500
million dollars. That is the model.”
Forbes & Manhattan doesn’t limit themselves to one particular area
in the resource sector. Said Bharti, “We
work in base metals, precious metals, uranium, coal, un-conventional oil, and agricultural
inputs such as potash.” They also don’t
limit themselves geographically. Bharti
said, “We work in Africa, South America, and we are big in Brazil. We have a wide range of projects in over 25
countries.”
Bharti
has taken time to think through the bearish market and has questioned the
relationship of stock prices and metals prices.
He said, “Over the last year, it has been tough. There is a malaise in the resource
sector. For the first time, I’m seeing
the metals prices are strong, but the stocks are down 50-90%. These are good
metals prices – we are in a good market.”
He believes that there is a fundamental reason that stock prices have
been hard hit, one that has to do with the investments made by companies and
investors. He said, “Why are the stocks
not performing? The stocks are not
performing because a lot of the majors overpaid for assets. Because they paid
cash for the assets, they really have to produce in order to get a return. The assets have not delivered.”Also in the
hot market investors financed marginal projects and they have run into issues
either in construction or operation. Now investors are selling off all projects
without regard for quality.
With
that perspective, Bharti believes there are excellent values in the market
immediately. He said, “Right now, there
are excellent deals in the market. Our
strategy is to do acquisitions. We want
to put money into a company. We have
identified a new company called Deep Value Capital and we are putting $100 million
dollars together to invest in seven companies and install teams to get them
moving forward in the next three to five years, the same model we used for our
two best gold companies, Sulliden Gold Corp Ltd (TSX: SUE) and Belo Sun Mining
Corp (TSX: BSX). Both companies have
recently received their Environmental permits and are moving into a
construction phase. If you like more
speculative options we have a company called Silver Bear Resources Inc. (TSX:
T.SBR in Russia. The grade is close to
600 grams per ton at cash cost under $10 an ounce. Black Iron Inc. (TSX:BKI)
(FRANKFURT:BIN)in Ukraine has an outstanding project with a completed
feasibility, high quality infrastructure including rail, power and an
exceptional management team and a strategic local partner in Metinvest.
The opportunities are phenomenal.”
www.forbesmanhattan.com
65 Queen
Street West
Suite 805, P.O. Box 71
Toronto, Ontario, Canada
M5H 2M5
Tel: +1
(416) 861-1685
Fax: +1 (416) 861-8165
info@forbesmanhattan.com